Recent developments in telecommunications and internet regulation in Germany

Author: | Published: 10 Oct 2001
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Major developments in internet and telecommunications regulation in Germany are transforming the legal regime applicable to these sectors. The German government continues its regulatory efforts to liberalize the sector and to provide an adequate legal framework. Numerous EU directives, including those on distance selling, e-commerce, and digital signatures, have been implemented into national law or are in the legislative process. New decisions by the Regulatory Authority for Telecommunications and Posts (RegTP) as well as a number of court decisions have also significantly changed the regulatory landscape in Germany.

Telecommunications developments

As the essential infrastructure for the internet, telecommunications are enormously important for the development of the medium. Only in an environment of high-quality, competitive and affordable telecommunications can the internet realize its commercial potential. The actions of telecommunications regulators therefore deserve close attention. In recent months, a shift in emphasis in German telecommunications regulation can be observed since Social Democrat Matthias Kurth replaced Klaus-Dieter Scheurle (of the conservative Christian Social Union) as president of the RegTP on January 1 2001.

Flatrate rulings

As part of the trend toward simplified pricing for internet access, Deutsche Telekom's (DTAG) subsidiary T-Online and its competitors offered access to users for a monthly flat fee. In the absence of a wholesale flat rate offering from DTAG, however, DTAG's competitors were compelled to purchase wholesale access from the incumbent DTAG on a per-minute basis which they then resold on a flat rate basis. To correct this competitive imbalance, RegTP ordered DTAG in November 2000 to offer internet service providers (ISPs) wholesale flat rate access by February 1 2001. The ruling was intended to spread the business risk involved in offering a retail flat rate and protect the ISPs from being squeezed between DTAG and the user. Per-minute pricing was still permitted under the RegTP decision, and DTAG had discretion in pricing its wholesale flat rate offering.

The RegTP decision, however, proved ineffective in promoting the flat rate retail access market because it was too narrowly based. DTAG complied with the order by offering a wholesale flat rate, but at the same time challenged RegTP's decision in court. DTAG alleged that the Telecommunications Act provides no legal basis to oblige DTAG to offer a new product (such as a wholesale flat rate), but merely the right to review the pricing of existing products. After losing in the Cologne Administrative Court, DTAG appealed and the Appellate Administrative Court of Northrhine-Westphalia overturned RegTP's decision on March 15 2001. Since T-Online had withdrawn its retail offering of narrowband flat rate access in the meantime, the court reasoned that DTAG's competitors could no longer be caught between low flat rate retail prices and high per-minute wholesale costs as a consequence of competing with T-Online. Although DTAG decided to voluntarily keep the wholesale flat-rate offer, the court ruling means DTAG can only be obliged to offer a wholesale narrowband flat rate product if it already offers a corresponding retail product on the market.

Recent studies prepared upon request of competitors have concluded that the price of DTAG's wholesale flat rate offer may not be cost oriented as required by the German Telecommunications Act (Telekommunikationsgesetz, or TKG). As a consequence, competitors of DTAG have filed an ex post rates regulation application before ruling chamber 3 of the RegTP. As long as DTAG keeps the wholesale flat rate offer in the market, it will be subject to these proceedings. Major price cuts are expected, which could lead to new competition in the flat rate market segment.

Line sharing

In December 2000, the European Parliament and Council issued a Regulation mandating unbundled access to the local loop. The German Federal Administrative Court has since ruled (in April 2001) that the obligation on DTAG to unbundle the local loop is lawful, and this regulation will apply in Germany as of January 1 2001. Among other things, it obliges the incumbent to offer competitors shared access to the local loop in the form of line sharing. Line sharing splits a transmission line into higher and lower frequency portions, allowing the lower frequency portion to be used by DTAG for voice transmission and the higher frequency portion for high speed internet access by DTAG's competitors.

The RegTP's Ruling Chamber established conditions for line sharing in a ruling in March 2001. According to the ruling, DTAG must offer line sharing on a non-discriminatory basis. A test phase of three months maximum is permitted, after which line sharing must be in commercial service. DTAG challenged this decision before the Appellate Administrative Court of Northrhine-Westphalia but the court upheld the decision of RegTP in summary proceedings. DTAG therefore has to offer line sharing without undue delay.

Local loop charges, resale and other DSL decisions by the RegTP

Another recent RegTP ruling in the DSL area, however, may not have such beneficial effects on competition in the market for broadband access. The ruling chamber rejected the request of a competitor to compel DTAG to allow interconnection of the competitor's broadband DSL-network with the T-DSL-Network of DTAG. The dominant position of DTAG in the DSL market therefore remains unthreatened.

The RegTP has also reduced charges for access to DTAG's local loops. Starting April 2001, competitors now pay a monthly rental of DM 24.40 ($11.48) for the most common variant of access to the customer, the unbundled copper pair. Compared with the former price of DM 25.40 this is a drop of roughly 5%. The RegTP has also lowered the one-time installation and disconnection fees. While a positive step, it remains to be seen if this decision stimulates further investment by alternative carriers.

In addition, RegTP has ruled that DTAG must make network access products available for resale purposes. The decision ordered DTAG to submit an offer to the complainant within three months and for the two parties to reach agreement themselves as far as possible. The RegTP refrained from setting any price or other targets in order to give the parties maximum scope to reach a settlement.

Element-based charges interconnection regime

In September 2000, the RegTP decided that interconnection tariffs should be based on the effective use of the different elements of the network (element-based charging, or EBC). The underlying consideration is to map the structure of costs as per where the costs are incurred. The costs, therefore, do not depend on distance but on the used elements of the network. The aim of an element-based charged interconnection regime is to stimulate the infrastructure competition and to avoid mis-investment. The main issue for the regulator is to determine what constitutes an efficient network structure. The RegTP, the competitors of DTAG and a scientific research institute (WIK) prefer a two-layer network structure while DTAG still adheres to a three-layer model.

The Administrative Court of Cologne (VG) overturned the new EBC interconnection tariffs as set down by the RegTP. In April 2001, the Appellate Administrative Court affirmed this decision and held that prices cannot be an integral part of the interconnection decision. In addition, the court felt that a theoretical cost model was inadequate to determine actual telecommunications network costs. Instead, the definitive actual costs must be considered. Subsequently, the RegTP stated that new interconnection tariffs will be based on the network structure of their prior EBC decision, ie 475 local exchanges. New tariffs will be valid as of September 1 2001.

3rd generation mobile, UMTS/IMT-2000

The RegTP sold six UMTS/IMT-2000 licences by auction in August 2001 for the record-breaking sum of Eu50 billion ($46 billion). The winners of the auction received the right to operate a UMTS/IMT-2000 3rd generation mobile network until 2020. A major legal issue after the successful auction of the UMTS/IMT-2000 frequency blocks was the question whether infrastructure sharing is permitted under the award conditions in order to reduce the cost for building out the UMTS infrastructure. The RegTP has drawn up a list of principles (infrastructure sharing principles) to clarify the extent to which (and the technical conditions under which) shared use of infrastructure is compatible with the UMTS Award Conditions (cf Ruling of February 18 2000 by the President's Chamber on the Determinations and Rules for the Award of Licences for UMTS/IMT-2000; RegTP Official Gazette of February 23 2000, Order 13/2000). In these infrastructure sharing principles, the RegTP explains, for example, how far the shared use of sites, masts, antennas, cables and combiners is permitted.

Telecommunications monitoring order

The Federal Ministry of Economics issued the Telecommunications Monitoring Order (Telekommunikations-Überwachungs-Verordnung, or TKÜV) which requires telecommunications and internet providers to install interception interfaces for law enforcement monitoring purposes. Cost allocation and privacy concerns have been addressed. The Ministry held a public hearing on telecommunications monitoring and cybercrime. As a result of this hearing, there are continuing talks between the Ministry of Economics and the industry associations on certain aspects of the TKÜV wording.

New frequency regime

In late March, the German Federal Ministry of Economics enacted regulations on a new frequency regime authorizing, among other things, the use of power lines for media transmission (power line communication). This provides companies interested in pursuing this business model the legal certainty necessary to deploy the technology. The new frequency regime also paves the way for the transition from analogue to digital broadcast transmission, the so-called analogue switch-off. In addition, it provides that frequencies assigned to broadcasters could also be used for Teleservices and Mediaservices.

Telecommunications outlook

The dominant position of DTAG in voice telephony, if unchallenged, will permit it to leverage into a similarly strong position in the DSL market. The nearly unchanged regulatory framework and the recent actions of the RegTP under new leadership suggest there will be no bold actions to increase competition in the near term unless forced by the EU Commission. The courts are also an unlikely source of market opening measures: through reliance on a narrow interpretation of the Telecommunications Act, they have overturned a number of RegTP decisions that would have had a liberalizing effect on the market. The Federal Ministry of Economics and Technology is not planning to change Germany's telecoms policy until mid-2003 when three EU directives on networks, services, access and interconnection are scheduled for implementation. The European Parliament is going to start its formal second reading of the package in September 2001, but an informal dialogue will be initiated well before that time.

Internet

In the internet sector, the Federal government's recent efforts have concentrated on consumer protection and the implementation of EU directives into national law.

Consumer protection: implementation of EU directives

A number of recent regulations have been aimed at enhancing consumer confidence in electronic commerce transactions. As of June 2000, the EU Distance Selling Directive was implemented into German law by the Distance Selling Act. The Act applies to all contracts for the purchase or sale of goods and services concluded between a seller and a consumer by any means of distance communication, including the internet. The consumer is given the right to withdraw from any such contract for a period of time, which is extended to four months if the seller does not provide the requisite details about the product or service being sold and the consumer's legal rights.

The draft German E-Commerce Act, effective in autumn 2001, implements the EU Directive on E-Commerce and will bring some changes to the existing laws, ie in the Teleservices Act, the Teleservices Data Protection Act and the Code on Civil Procedure. It adopts the Directive's definitions together with its choice of law, disclosure, and liability rules. Choice of applicable law will be governed by the country-of-origin principle, as a result of which the law of the country of origin will generally govern the provision of online services offered from within Europe. Major concerns were raised by industry associations on the German adoption of this country-of-origin principle, primarily because the draft version of the German E-Commerce-Act does not clearly adopt this principle and states, that the applicable law has to be determined by comparing the most favourable law. This alone does not lead to more legal certainty for companies, as intended by the E-Commerce-Directive.

As to liability, the existing threefold approach for illegal or harmful content in the Teleservices Act remains basically unchanged. A service provider is: (i) fully responsible for its own content; (ii) responsible for third party content only insofar as the provider knew of the content and could block it; and (iii) not responsible for third party content if it only provides access to such content (applicable to access and network providers). Other provisions of the Directive regarding the conclusion of contracts by electronic means are implemented through the Digital Signatures Act and the legislation to amend the Civil Code, which came into force on August 1 2001.

Digital signatures

Despite the existence of digital signatures legislation since 1997 (Signature Act – Signaturgesetz; Regulation on Signatures – Signaturverordnung), digital signatures have not been successfully introduced in Germany. The regime is therefore being revised in order to remove some of the administrative burdens of the existing law and ensure conformity with the EU Directive.

The amended Signature Act was passed by the parliament in February and became effective on May 21 2001, while the accompanying revision of the Regulation on Signatures is expected to be completed in the autumn of this year. A draft of this Regulation has been issued for public consultation by the Ministry of Economics. The Act will repeal the requirement that service providers need regulatory approval before using digital signatures. However, service providers will still need to demonstrate that they possess the necessary reliability and specialized knowledge. In particular, they will need to present a security concept to the RegTP. Providers can voluntarily become accredited certification service-providers. To qualify, they must be technically interoperable with the RegTP's public-key infrastructure in Germany, thus increasing their utility and attractiveness to users.

Data protection in teleservices

The revised Act on the Protection of Personal Data Used in Teleservices (Teledienstedatenschutzgesetz - TDDSG) implements EU Directive 95/46/EC and incorporates recommendations from a review of the Information and Communication Services Act (IuKDG) conducted for the German parliament (BT-Drs. 14/1191). The IuKDG-report suggested that improvements were needed to provide transparency to the user and to clarify the relationship between general and specific data protection rules in the existing law. Under the new TDDSG, a provider must disclose to the user before beginning processing: (i) the type, scope, and purpose of the collection, processing, and use of his personal data; and (ii) any processing of his data in countries outside the EU. Failure to inform the user of the collection of personal data or the combination of a user's profile with data on the bearer of a pseudonym is punishable by a fine of up to DM 100,000. Unlike the present TDDSG, the amended Act also permits a provider to store a user's transaction data for a period of six months after forwarding the invoice for the purpose of responding to a user's request for information.

Highlights of recent internet-related cases

As commercial use of the internet matures, lawsuits defining the scope of liability and jurisdiction for matters relating to the internet are yielding an increasing number of judgments from the higher courts in Germany.

a) Liability of online providers for copyright infringement

In a widely-criticized decision issued on March 8 2001, the Munich Court of Appeals held an online provider strictly liable for copyright infringement for hosting a music forum where users could download their favorite songs without paying any royalties. The court found that the provision in the Teleservices Act shielding a provider from liability if it lacks knowledge of the infringing third-party material hosted on its service was not applicable in cases of copyright infringement. The scope of a provider's liability for copyright infringement is expected to be further clarified upon resolution of the pending appeal of this case and the entry into force of the new German E-Commerce Act and the new Teleservices Act.

b) Domain names

An increasing number of court rulings have shed some light on the status of domain names. Numerous German regional and local courts have held that reserving and using an internet domain name that infringes third party rights (such as a registered trademark) is prohibited and that the German courts have jurisdiction over any such infringement if the domain can be accessed in Germany. The infringing party must not only refrain from using the domain name but must also abandon all rights related to it. In addition, DeNIC eG, the company assigning ".de" top-level-domains, was obliged to transfer an unlawfully reserved domain name to the owner of the trademark and, in case of negligent registration of the domain name, pay damages. However, according to a Federal Court of Justice ruling of May 2001, DeNIC is not obliged to free a domain until a final judgement is rendered. In another judgment, the court found that generic terms are also permissible domain names provided they are not misleading.

Internet outlook

The Digital Signatures Act has and related legislation will come into force in 2001. Together with the other important developments discussed above, the integration of the internet into the legal framework is progressing at a rapid rate. Other issues such as the debate on the enforcement of copyright in the digital age and the implementation of the new EU Copyright Directive will continue to place the regulation of e-commerce high on the political and legal agenda.

A future regulatory question is raised by DTAG's sale of its cable network serving more than 20 million households to Liberty Media, Callahan Associates and Klesch & Co in August 2001. One key issue is the fair access to the cable system for broadcasters, as well as for Teleservices and Mediaservices providers. The federal cartel office is reviewing this transaction and may impose restrictions for the new cable operators on fair access conditions.


Wilmer, Cutler & Pickering
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